The world is going through one of the most difficult economic periods of modern history, with the lingering effects of the Covid pandemic and regional wars causing economic uncertainty around the world. As we near the end of 2023, we’re going to look back at the ups and downs for our economy this year… and we’re also going to look forward, as much as we can, to what 2024 might have in store.

Take me back to the start of 2023…
Are you sure because it wasn’t a pretty picture… We’d ended 2022 with inflation at its highest level in decades – in December 2022, inflation hit 7.8%, which is way higher than the 2-3% that the Reserve Bank would like it to be…

What was inflation like globally?
Inflation across the world was at a similar level, with the World Bank estimating a rate of 8%… which was really bad news. 

So just remind me why inflation is so high…
Remember all those COVID lockdowns and disruptions to supply chains? That meant we were finding it harder to buy the items, and so we ended up paying higher prices for the scarcer supply. Also, Russia’s invasion of Ukraine disrupted the oil supply to European nations and further afield and meant that the cost of producing energy spiked.

And this is why interest rates are going up, right?
Right. Central banks around the world are doing that because if it’s more expensive to borrow money, people end up spending less. And that, in turn, takes the pressure off price rises/inflation. 

But that also slows the economy/leads to job losses… 
Indeed, so the key economic question coming into 2023 was whether the Reserve Bank and the Albanese Government would be able to thread a very fine needle to lower inflation without inflicting too much damage to the economy. 

Come again?
There’s also another metaphor that becomes popular with economists, and that’s the image of a plane coming in to land – with the aim of achieveing a ‘soft landing’.

That’s a tough job given the year it’s been…
Indeed… In March, things weren’t looking rosy when a handful of banks failed in the US. The biggest of these was Silicon Valley Bank – essentially, what happened was the bank’s deposit-holders wanted to withdraw their money, and Silicon Valley Bank didn’t have enough money to pay them all back.

Yikes, did that freak people out?
Massively. So the federal government intervened early to guarantee customers would get all of their money back, and that was enough to stop panic from spreading. There were some global repercussions – a big bank in Switzerland also had to be rescued – but by the end of the month, the global banking system had settled down.

Crisis averted… What happened next?
After that, the global economy settled into a bit of a routine, where we started to see that inflation rates were gradually coming down. At the same time, central banks around the world stopped raising interest rates so fast – so the hope of a soft landing for the economy started to look like more of a reality…

Where are we sitting now, at the end of 2023?
It’s a bit iffy, but the signs are looking positive. We got another piece of evidence that points towards a soft landing last week when the Bureau of Statistics said inflation for the 12 months leading up to October had fallen to 4.9%.

So inflation is falling?
It is, and to get it under 5% is considered a good sign. It led Treasurer Jim Chalmers to say that a “soft landing is now assumed, but it’s still not assured.”

“Not assured”… What kind of things could go wrong in 2024?
Well, the main thing to note about the forecast for 2024 is that most economists around the world predict that global economic growth is going to be slower than it was this year. 

How much slower?
The prediction from leading economists is that growth will slow from its current rate of 2.9% to 2.6%. Here in Australia, our growth is expected to go from 1.8% this year to 1.4% next year.

Why is the economy going to slow down?
The reasons given for this slowdown are similar to what we’ve seen for the past couple of years – interest rates are set to remain high, and so too will energy prices. But that’s not all…

Tell me…
The world’s 2 biggest economies – the US, and China – will also likely see their economies slow. The US economy is predicted to grow 1.5% next year. And look, it’s better to be in growth than not, but 1.5% isn’t huge. While China’s predicted to be around 4.6%. 

China’s growth sounds great…
Not really – the thing to remember about China is that they’re used to economic growth way above 5%, so anything below that is significant.

What’s happening there?
China’s problems come from 2 main factors. First, the property market there is crashing. Second, they’re dealing with a big slump in foreign investment. In the past, that’s fuelled a big part of its growth. 

And what’s the prediction for Australia for 2024?
The  Reserve Bank’s official prediction is that cost-of-living pressures and higher interest rates will continue to weigh the economy down. As for inflation, they predict that the rate will dip under 3% at the end of 2025, which means 2 more years of high interest rates and slow growth. But they say the economy is more resilient than expected. 

So that’s something…
It sure is.

Squiz recommends:

Listening: From The New York Times, an episode of The Daily podcast about Americans thinking the economy is worse than it actually is.

Reading: The RBA’s official page for explaining monetary policy to Aussies.